India’s Diamonds Lose Their Luster

Hit by gloomy news of global recession, consumers sharply curtailed purchases of luxury goods, putting millions of jobs in jeopardy. It took India four decades to position itself as a world leader in processing diamonds, reports Neeta Lal for the Asia Sentinel, but recession in the US reduced demand by 60 percent."The industry had been witnessing exponential growth for over two decades, attracting migrant labor from all across Gujarat's drought-prone districts, was mainly agricultural labor and small-time farmers who shifted to Surat's booming industries where their earnings quadrupled," writes Lal. A shift in attitudes, from confident demand to outright fear, has exacerbated the crisis in India's diamond industry: Factories paid top dollar for diamonds in high demand just a year ago and are now left with inventories of stones that nobody needs. The downturn contributes to layoffs, suicides and crime. The industry seeks governrment subsides, but officials balk and question the sustainability of an industry that caters to the wealthy. The government offers retraining, but skilled workers object to reduced wages for difficult construction jobs. Wealthy consumers have put aside desires for luxury goods and focus on potential future needs, forcing other workers to do the same. – YaleGlobal

India's Diamonds Lose Their Luster

Neeta Lal
Thursday, February 5, 2009

Kishore Hali, 22, a diamond polisher at an industrial unit in Saurashtra, in India's western state of Gujarat, was the sole breadwinner of his eight-member family. When his unit shut its doors last month, the youth struggled with a $400-debt before jumping into a well to kill himself.

Nor is Hali alone. At least 70 diamond industry workers in Gujarat, one of India's poorest states, have committed suicide over the past few months as the state's storied diamond industry has sunk into depression. Nearly 60 percent of Gujarat's diamond industry has closed. Gujurat accounts for 72 percent of the world's processed diamonds and 80 percent of India's diamond exports. About 92 percent of the world's diamonds cut in 2003 were in Surat.

The Surat diamond industry alone is worth Rs8 billion — or was — and accounted for more than half of India's diamond exports, an industry that employs more than 700,000 workers across the country. Overall, about 2.5 million are associated indirectly with the diamond trade in India. But with the export market in a recession, layoffs and suicides have cast an ominous shadow over the state's 10,000-odd diamond units.

Analysts point out that it took India over four decades to consolidate its position as a world leader in processing diamonds. "Our biggest concern is the possibility of losing this pre-eminent position if the government does not implement these measures immediately," says Prakash Nane, a diamond trader.

"Surat is one of the biggest polishing industries of the world. The business is being carried out here for over five decades. But the US downturn has affected us badly as more than 60 percent of our exports used to go to the United States. Today, it is down to less than 30 percent," Nane said.

Diamond exporter Prem Bhaiji added that while Surat has witnessed several ups and downs in the last two decades, nothing has hit as hard as the current impasse. He states that a general shortage of rough diamonds, the global economic crisis, a recession in the domestic market and rising production costs due to inflationary pressures have coalesced to take the shine off the industry.

According to Gems and Jewellery Export Promotion Council (GJEPC) chairman Vasant Mehta, the US recession has caused a 60 percent plummet in demand from India. As a result, units have been forced to cut production by over 25 percent and recently announced a moratorium on the purchase of rough diamonds for processing and production.

Ironically, till barely six months ago, Gujarat's diamond industry was thriving as the largest exporter of processed diamonds to the US and accounted for almost eight of every 10 processed to be sold worldwide. Today, with thousands of units closing, laid off workers are struggling for sustenance or migrating to other cities in search of work.

"My family has been in the diamond business for 40 years but I've never seen such terrible times," says Bhaichand Patel of Surat Crafts, a diamond unit in Surat, which is working at half its earlier capacity, employing only 25 per cent of its former staff.

Chetan Sangvi, Gujarat region chairman of the Gems and Jewelry Export Promotion Council (GJEPC), estimates that due to the huge gap between supply and demand of diamonds this year, factory owners are saddled with gargantuan quantities of unsold polished and rough diamonds. These owners had earlier bought rough diamonds at peak prices due to high demand which is further adding to their losses. Tough competition from countries like Sri Lanka, China and Indonesia, hasn't really made things easy.

Surat alone has about 6,000 units which cut and polish diamonds. These units have laid off about half of their workforce in the past few months. Those who still have jobs do only minor cutting and polishing tasks for orders from domestic clients.

Analysts say 2009 is likely be tougher yetr. According to RSM Astute Consulting, a global audit, tax and consulting company, gross domestic product growth in most of the major diamond markets in the US and Europe is estimated to be negative in 2009.

The industry had been witnessing exponential growth for over two decades, attracting migrant labor from all across Gujarat's drought-prone districts, was mainly agricultural labor and small-time farmers who shifted to Surat's booming industries where their earnings quadrupled.

These migrants account for a bulk of Surat's diamond industry work force. But with the slump, thousands of workers are fleeing from Gujarat while others are resorting to unlawful activities like stealing and bootlegging. In January, two diamond polishers were arrested in Surat with bootlegged liquor while another two were caught trying to break into a shop. Due to the protracted crisis, many diamond firm owners have also diversified into real estate to sustain themselves.

With no immediate succor in sight, the diamond industry is seeking a bailout package worth Rs 20 billion from the state government but finding little sympathy. They are also pressing for other demands like including free education for their children, special loans for diamond factories, monthly unemployment allowances of Rs 2,500 and relief in bank rate.

However, Chief Minister Narendra Modi is unsympathetic, saying that since the sector had done nothing for the uplift of the state when its coffers were overflowing, why should the state come to its rescue now? But the industry is insistent about getting its demands fulfilled which include modernization of diamond units by inducting new technologies so that they can cut costs and enhance productivity to maintain margins. The industry has also demanded an upgrade fund so that diamond units can get soft loans with a built-in subsidy of 20 percent. Import duty waiver to import new technologies and modern machinery, are some of their other demands. Currently, diamond machinery imports attract 30 percent duty.

Under immense media pressure, the Gujarat state government, which had till now turned a blind eye to the crisis in the diamond industry, has agreed to rehabilitate the industry's laid off workers. It has announced work to be given to them under the state-funded National Rural Employment Guarantee Scheme (NREGS).

However, the Diamond Workers' Association is unimpressed. They reiterate that this offer will mean that the unemployed workers will now have to toil as casual laborers, in tasks such as road building and road widening at a quarter of their earlier wages.

"We are skilled people. How does the government expect us to do the work of daily wage earners?" asks Keshu Patel, a laid off worker currently in Delhi to explore other avenues to sustain his family of six. "Why can't the government give us jobs which are commensurate with our skills and earlier remuneration?"

In other words, till such time that the Indian government hits upon a universally acceptable solution to restore the sparkle to the country's prized industry, it will continue to face a lackluster future.

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